NEW YORK (Reuters) - Stocks and the U.S. dollar fell on Monday in a seesaw session after data showed that U.S. manufacturing activity contracted for the first time in six months, raising concerns about the health of the U.S. recovery.
The Institute for Supply Management reported that its gauge for new orders slipped and said there was less demand for exports. Markets have become particularly sensitive to U.S. data since the Federal Reserve started to raise the prospect of scaling back its bond-buying program if the economy shows it is on a sustainable growth path.
The Nasdaq composite index fell as much as 1 percent, but the Dow industrials rose, led by a jump in shares of drug maker Merck & Co.
"We are at all-time highs, and the data is not supporting the all-time highs," said Ken Polcari, director of the NYSE floor division at O'Neil Securities in New York. "There is a realization that unless things start to turn around we could be in for a little bit of a correction."
The Dow Jones industrial average was up 37.37 points, or 0.25 percent, at 15,152.94. The Standard & Poor's 500 Index was down 2.67 points, or 0.16 percent, at 1,628.07. The Nasdaq Composite Index was down 23.83 points, or 0.69 percent, at 3,432.09.
Merck shares were up 4 percent following the results of a melanoma drug study.
While Monday's data was important, the clear focus across financial markets is the non-farm payrolls report for May, which may guide the Fed's thinking on stimulus more than any other report.
Wall Street analysts expect 170,000 jobs were added last month, slightly above the 165,000 adding in April, according to a Reuters poll.
If the payrolls report is strong, the poor ISM data would be easily forgotten and the dollar would rally, said Alan Ruskin, head of G10 FX strategy at Deutsche Bank in New York. Overall, he believes U.S. employment data will be the determining factor as to whether the Fed will wind down its asset purchase program.
TURKEY PLUNGES
The dollar fell below 100 yen, its lowest level in nearly a month, after the U.S. manufacturing report prompted investors to search for safer havens. it lasted traded at 99.25 yen.
"If this is truly the start of a broader market panic, we believe the Japanese yen may be one of the largest beneficiaries as speculators stampede for the exits," said David Rodriguez, quantitative strategist at DailyFX in New York.
Markets in Asia and Europe were rattled earlier by data showing China's economy lost steam last month, with factory activity shrinking for the first time in seven months and slower growth in services.
MSCI's world share index, which tracks stocks in 45 countries, was down 0.2 percent.
Turkish shares plummeted more than 10 percent after riots across the country. The Istanbul bourse fell to its lowest level since February 26 after several days of anti-government protests.
Earlier, a brighter-than-forecast reading on the equivalent PMI data from Europe drove a rebound in top European shares, though they fell after the U.S. ISM data. The FTSEurofirst 300 closed down 0.7 percent
U.S. DEBT
Prices for U.S. 30-year Treasuries traded flat on Monday, paring earlier gains after the disappointing manufacturing data as investors trimmed bets the Fed might scale back bond purchases this year.
The 10-year Treasury note last traded 1/32 higher in price with a yield of 2.1301 percent. Prior to the ISM data, it was down as much as 15/32 in price with a yield of 2.187 percent, about 5 basis points below the 13-month-plus peak set last week.
"The overall theme for the coming weeks is going to be a very volatile trading environment, and you are going to have the U.S. and Japan being a significant driver to what is happening in Europe," said Rabobank strategist Lyn Graham-Taylor in London.
Oil markets and commodity markets were also volatile. Brent crude oil dipped briefly below $100 a barrel for the first time in a month on demand worries after the Chinese factory data pointed to slowing momentum in the world's second-biggest oil consumer.
The losses were outweighed by a problem with the North Sea Buzzard oilfield.
U.S. oil rose $1.29 to $93.27 a barrel. The weaker dollar helped support higher oil prices. Oil is priced in dollars and when the dollar sinks, oil becomes less expensive for holders of other currencies.
Gold jumped 2 percent, hitting its highest in more than two weeks, boosted by the tumbling dollar and U.S. manufacturing data.
(Reporting By Nick Olivari in New York; Editing by Leslie Adler)
